2002 (1) TMI 1355 - AT - Central Excise

Supplier not a manufacturer where independent job workers machined parts at their premises; subcontractors deemed manufacturers

CEGAT held that independent job workers who performed machining at their premises were the manufacturers; the supplier of rough castings was not the ... Manufacturer versus job worker - liability for duty where goods are machined by job worker - manufacturer as person who brings a new product into existence - supervision and control test for hired labour - Rule 57F compliance for job work - prospective operation of penalty provision under Section 11ACManufacturer versus job worker - liability for duty where goods are machined by job worker - manufacturer as person who brings a new product into existence - The machined castings were manufactured by the job workers and not by the appellant. - HELD THAT: - The Tribunal accepted that the machining operations were carried out at the premises of independent job workers to whom rough castings were sent after duty payment. The record, including statements of job workers and the manner of orders and payments, showed independent contracting and independent workshops carrying out similar work for other customers; in some cases customers paid the job workers directly. The Court applied the settled principle that a raw material supplier is not the manufacturer and that the person who brings into existence a new product is the manufacturer, relying on the authorities cited in the impugned order: Ujagar Prints v. Union of India and CCE v. M.M. Khambhatwala . In absence of evidence that the machining was incomplete at the job-worker premises or that the appellant undertook further manufacturing steps amounting to bringing the product into existence, the appellants cannot be treated as the manufacturer and made liable for duty on machined castings. [Paras 4]Findings against the appellant treating them as manufacturer are set aside; the job workers are the manufacturers of the machined castings.Supervision and control test for hired labour - Rule 57F compliance for job work - The Tribunal rejected the adjudicating authority's conclusion that alleged supervision by the appellant and payment of job charges made the job workers hired labour or that the appellant's failure to use Rule 57F demonstrated intent to evade duty. - HELD THAT: - The Commissioner had relied on overall supervision and the fact that job workers received job charges (rather than full manufacture receipts) to treat them as hired labour and to infer evasive intent for not resorting to Rule 57F. The Tribunal found no evidence that the appellant carried out further processing such as heat treatment or packing after receiving machined parts back, nor evidence that machined castings were returned to and despatched from the appellant's factory. The statements of job workers indicated independent business operations, established workshops, and dealings with other customers. On these facts, mere supervision or payment of job charges did not suffice to convert the job workers into hired labour, and the Commissioner's inference of evasive intent was not supported by record. [Paras 4]The finding of hired-labour relationship and of evasive intent for noncompliance with Rule 57F is not sustained.Final Conclusion: The appeal is allowed; the impugned order is set aside on the ground that the machined castings were manufactured by independent job workers and not by the appellant, and there is no evidence of further processing by the appellant that would make it the manufacturer. Issues: (i) Whether the machined castings were manufactured by the appellants or by independent job workers and consequently whether the appellants are liable to pay duty as manufacturers.Analysis: The appeal examines whether machining performed at job workers' premises amounts to manufacture by the appellants. Relevant considerations include whether machining was carried out at the job workers' own establishments, existence of independent status of job workers (registered units, their own machinery and employees), payment flow (direct by customers to job workers), absence of evidence of further processing by appellants (such as heat treatment or repacking at appellants' premises), and whether supervision or payment of job charges converts job workers into hired labour. Precedent establishes that a raw material supplier is not the manufacturer and that the person who brings a new product into existence is the manufacturer. The record lacks evidence that machining was incomplete at job workers' premises or that appellants performed substantial further processing or despatch from their factory that would amount to manufacture.Conclusion: The finding that the appellants were the manufacturers is set aside and the appeal is allowed; decision is in favour of the assessee.